Will HOOD and APP Stocks Surge After Joining the S&P 500?

On 8 September 2025, two prominent companies, Robinhood Markets and AppLovin, officially joined the S&P 500 Index, marking a significant milestone for both firms. This inclusion not only highlights their growth and stability but also validates their profitability in the eyes of investors. Following the announcement, Robinhood's shares surged nearly 16%, and AppLovin's rose by approximately 12%, reflecting strong market confidence. Understanding the implications of their S&P 500 inclusion can provide crucial insights into their future performance and the broader market dynamics.

Last updated: 08 September 2025 (BST)

Key Takeaways from Robinhood and AppLovin's S&P 500 Inclusion

• Both companies have demonstrated consistent GAAP profitability, making them attractive S&P 500 candidates.
• Market reactions indicated strong investor confidence, with substantial share price increases on the announcement date.
• Inclusion in the S&P 500 can lead to increased demand from index-tracking funds and institutional investors.
• This milestone enhances the credibility of both companies within the financial market.
• Long-term success will depend on their ability to maintain earnings growth and expand operations.

Understanding the Significance of S&P 500 Inclusion

The S&P 500 Index is a key benchmark for U.S. equities, representing the largest publicly traded companies in the United States. Inclusion in this index is a significant achievement for any company, as it serves as a mark of stability, credibility, and growth potential. For Robinhood and AppLovin, their inclusion not only validates their business models but also increases their visibility among investors.

GAAP Profitability: A Crucial Criterion

One of the critical requirements for inclusion in the S&P 500 is that a company's Generally Accepted Accounting Principles (GAAP) net income must be positive over the last 12 months. This metric ensures that companies are not just financially viable through adjusted earnings figures but are genuinely profitable under standard accounting practices.

Robinhood has reported positive GAAP net income for the last seven consecutive quarters, while AppLovin has achieved this for nine quarters. This consistent profitability is a strong indicator of their financial health, distinguishing them from other companies seeking inclusion.

Comparative Analysis with Other Contenders

While Robinhood and AppLovin celebrated their inclusion, it's worth noting the case of Bitcoin-buyer Strategy (MSTR), which, despite a market cap of around £93 billion, has not been included. Strategy reported a GAAP net income of £4.7 billion over the last four quarters but only achieved positive figures in two of the last eight quarters. This inconsistency can deter the S&P from adding companies to the index, making Robinhood and AppLovin's stable earnings a significant advantage.

Market Reaction and Future Implications

The market's positive reaction to the announcement on 8 September was palpable. Robinhood's stock surged by nearly 16%, while AppLovin's rose by approximately 12%. This spike in share prices can largely be attributed to the anticipation of substantial purchasing activity from index-tracking funds.

Increased Demand from Institutional Investors

Major financial firms, such as BlackRock and Vanguard, manage some of the largest passively managed ETFs and mutual funds that track the S&P 500. When a new stock is added to the index, these firms must purchase shares to ensure their funds accurately reflect the index. The expectation of this buying activity contributes significantly to the immediate boost in share prices following the announcement.

For instance, BlackRock’s iShares Core S&P 500 ETF (IVV), which tracks the S&P 500, holds approximately £667 billion in net assets. The inclusion of HOOD and APP means that these funds will be compelled to buy shares, thereby creating incremental demand beyond regular market activity.

Active Management Strategies and Their Impact

In addition to passive fund buying, active fund managers who aim to outperform the S&P 500 may also increase their holdings of Robinhood and AppLovin. Many of these managers use the S&P 500 as a baseline for their portfolios and may adjust their allocations based on performance and market trends. This could further amplify demand for the stocks.

Long-Term Outlook for Robinhood and AppLovin

While the initial market reaction is promising, the inclusion in the S&P 500 does not guarantee long-term success. Both companies must continue to deliver strong earnings and expand their market presence to maintain their positions within the index.

Challenges Ahead

Investors should be mindful that market conditions can change rapidly. Factors such as economic fluctuations, regulatory changes, and competitive pressures can impact profitability. Therefore, while the current outlook for Robinhood and AppLovin is positive, their future performance will depend on their ability to navigate these challenges effectively.

Investment Considerations

For those considering investing in Robinhood or AppLovin, it is essential to conduct thorough research. While both companies have shown remarkable growth and stability, assessing their long-term potential involves understanding their business models, market strategies, and economic conditions. Analysts currently rate AppLovin as a Moderate Buy, but other stocks may be seen as more attractive investments.

Conclusion: What Lies Ahead for Investors?

Inclusion in the S&P 500 is undoubtedly a significant achievement for Robinhood and AppLovin, providing them with enhanced credibility and visibility in the financial markets. However, investors should remain cautious and focus on the companies' ability to sustain their growth trajectories. As the market evolves, ongoing monitoring of their financial performance and market conditions will be crucial for making informed investment decisions.

As the landscape of the stock market changes, are Robinhood and AppLovin poised to remain strong contenders in the S&P 500, or will new challengers emerge? Only time will tell. #Investing #StockMarket #SP500

FAQs

What does it mean for a company to be included in the S&P 500?

Inclusion in the S&P 500 signifies that a company is among the largest and most stable publicly traded firms in the U.S., providing increased visibility and potential investment from institutional funds.

How does the S&P 500 selection process work?

The S&P 500 is curated based on several criteria, including market capitalisation, liquidity, and financial viability, specifically looking for positive GAAP net income over the last 12 months.

What are GAAP profits, and why are they important?

Generally Accepted Accounting Principles (GAAP) profits refer to a company's net income calculated according to standard accounting rules. They are crucial for assessing a company's financial health and stability.

How does S&P 500 inclusion affect stock prices?

Inclusion often leads to increased demand from index-tracking funds, which can drive up stock prices as these funds must purchase shares to align with the index.

Are Robinhood and AppLovin good investment options now?

While both companies have shown strong growth and recently gained S&P 500 inclusion, potential investors should carefully evaluate their long-term growth prospects and market conditions before investing.